Introduction
The Securities and Exchange Board of India (SEBI) has introduced a framework aimed at providing flexibility to Foreign Portfolio Investors (FPIs) in managing their securities after the expiry of their registration. This circular, SEBI/HO/AFD/AFD-PoD-2/P/CIR/2024/77 dated June 05, 2024, outlines amendments and guidelines pertinent to FPIs, designated depository participants (DDPs), custodians, and stock exchanges.
Background and Regulatory Amendments
SEBI, through the FPI Master Circular and Custodian Master Circular, has specified registration guidelines and investment conditions for FPIs. Recent amendments to the SEBI (Foreign Portfolio Investors) Regulations, 2019, effective June 03, 2024, grant FPIs greater flexibility in handling their securities post registration expiry.
Modifications to the FPI Master Circular
1. Continuance of Registration
- FPIs must renew their registration for the subsequent three-year period, with specified timelines and conditions for submission of information and fees.
- Provisions allow for re-activation of expired registrations within 30 days, subject to compliance with KYC and AML/CFT requirements.
2. Reclassification and Change in Compliance Status
- FPIs failing to comply with eligibility criteria or operating from jurisdictions classified as non-compliant are subject to reclassification and restrictions on fresh purchases.
3. Handling Securities Post Expiry
- FPIs are permitted to dispose of securities held after expiry of registration within prescribed timelines, with provisions for additional disposal periods and financial disincentives.
4. Disposal of Written-off Securities
- Securities deemed written-off by FPIs are transferred to an escrow account for subsequent sale, with proceeds allocated to the Investor Protection and Education Fund (IPEF).
Implementation and Operational Mechanisms
SEBI directs recognized stock exchanges to establish operational mechanisms within 60 days for the disposal of written-off securities through empanelled brokers. Monthly reporting requirements for custodians are also specified to ensure transparency and compliance with these guidelines.
Conclusion
This SEBI circular, issued under its regulatory authority, aims to safeguard investor interests and promote market integrity by enhancing the operational flexibility for FPIs in managing their securities post-registration expiry. Effective immediately, except for specific provisions under para 3.5, these guidelines are crucial for stakeholders in the securities market to implement and adhere to promptly.
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